Economists in South Africa expect the country’s inflation for the month of September to peak at 6.2 per cent year-on-year compared with 5.9 per cent recorded for August.

The South African Reserve Bank’s inflation target band is between 3.0 and 6.0 per cent but it has, however, warned that there is no room for complacency in monetary policy and that it may increase interest rates at the coming meeting of its Monetary Policy Committee (MPC) if inflation accelerates.

Economists say they expect a higher inflation number for the month of September. This is mainly because of petrol price increases and the lag effect of higher food prices caused by the drought.

Chief Strategist at Old Mutual Wealth Dave Mohr says: “Oil price rose and we had that increase in the petrol price in September. And in September a year ago, there was a cut. So, if you compare it on a year-on-year basis that’s one of the reasons why inflation will be high.”

Kudd Capital economist Elize Kruger says: “Last month, the drop below 60 cents to 5.9 per cent was driven by a big drop in the petrol price of 99 cents a litre. We knew that was going to be a once-off drop below 6.o (per cent)

“So far, the month of September, we’ve got a high survey month with quite a few surveys that could exert upward pressure to the CPI (consumer price index) basket. These are the rental components, local transport fares like taxi and bus payments.

“The petrol price dropped by 18 cents in September but that drop was too small to offset the other pressures that were pushing the inflation higher in September.”

Higher food prices are still expected to exact upward pressure on inflation in the coming months.

Mohr says: “Food price inflation that is starting to ease and I don’t think that will be the major issues, but if you think of the petrol price it’s very volatile.”

Kruger says: “So far, we have been seeing the food price cycle still picking up and I think partly because of the conditions of draught and it’s still filtering into prices as well as a lag effect because of the rand exchange rate, but we don’t expect food prices to moderate into the festive season and we are entering that in the next few month of two.”

The Reserve Bank kept its benchmark rate unchanged at 7.0 per cent for a third consecutive time in 2016 in September. This is due to the weak economic outlook but the central bank also raised concerns about inflation them.

Source: Nam News Network